Tag Archives: Payday Loans

States all over the country are attempting to introduce their own type of regulation pertaining to the payday loan industry. One of them is the state of Minnesota, which previously tried to regulate the bad credit loan industry but failed after intense lobbying efforts.

It has been reported that Minnesota legislators will introduce legislation in 2016 to curtail payday loan lending. However, many political observers and state officials say it won’t be as simple as just currying up enough votes.

This isn’t the first time that The Gopher State proposed legislation to curb payday loan establishments. In 2014, lawmakers put forward legislation that would limit the number of payday loans consumers can take out to just four and place a cap on interest rates. The bill’s supporters said the average annual interest rate on short-term personal loans for people with bad credit is 260 percent, while the average customer takes out about 10 loans per year.

Unfortunately for bill sponsors, there was immense lobbying initiatives. Payday America, the biggest bad credit loan lender in the state, spent more than a quarter of a million dollars to quash the bill. Payday America is one of the top six “Big Lenders” thanks to their physical store locations and abundance of eager affiliates that get compensated very well.

A specific proposal has yet to be created, but State Representative Joe Atkins noted that any new regulatory reforms wouldn’t “be a disaster.” At the same time, however, he concedes he doesn’t “want to put them out of business. I just want to put reasonable interest rates in place.”

Atkins, who was the sponsor of last year’s payday loan lending reform bill, explained that consumers have to take action, too. He argued that Minnesotans must look at alternatives prior to applying for a bad credit loan: ask for an advance on your paycheck from your employer, request a payment plan with a creditor or seek out aid from non-profit organizations.

In the meantime, Minnesota may look at how other neighboring states instituted reforms. By studying other states’ reforms to the payday loan niche, it could offer guidance for lawmakers to create the best balance: protection for consumers and allowing lenders to keep their doors open.

It won’t be too difficult to find out what states have done. In most cases, there have been three primary changes: a cap on interest rates, allowing consumers longer times to pay back the loans and limiting the number of payday loans consumers can take out.

Federal Consumer Finance Agency Taking Action

At the federal level, one agency is looking to impose extensive reforms on the bad credit loan business.

The Consumer Financial Protection Bureau (CFPB), led by Richard Cordray, submitted a proposal this past March that would cap interest rates, restrict lenders from accessing customers’ bank accounts to collect payment and reduce the amount of excessive fees.

“The proposals we are considering would require lenders to take steps to make sure consumers can pay back their loans,” said CFPB Director Richard Cordray in a statement. “These common sense protections are aimed at ensuring that consumers have access to credit that helps, not harms them.”

Ostensibly, an overwhelming number of U.S. consumers are in favor of such regulation, says one survey.

Pew Charitable Trusts found that 75 percent of respondents agreed that payday lenders should be more regulated. Only 10 percent of survey participants maintained a positive opinion regarding payday loan providers.

Payday loans are banned strictly in the state of New York since they are found to be trapping consumers in on-going debt cycles. Since these collecting companies were collecting loans that were illegal in the first place, the state authorities took strong legal action against them. These five companies are not only banned from making any further collections in the state of New York but are also required to pay more than $300,000 in penalties and restitution.

One of the payday loan collecting companies that was banned allegedly made 8,550 negative credit reports for consumers to credit bureaus in an attempt to pressurize them to pay their loans as well as heavy interest. The company was required to reverse all these negative credit reports and was prohibited, along with all the other companies, from making any more collections for payday loans in New York. The state laws have also clearly specified that all other companies are prohibited to make any collections for payday loans in New York in the future.

Lawsuits against online payday lending companies were also filed by the state of New York including Western Sky (who has now stopped lending), WS Funding and Cash Call for charging interest rates on loans that were higher than the usury cap applicable in New York. Under the state laws, the non-bank lenders that are not licensed by the state can charge a maximum interest rate of 16%, while these payday lending companies typically charge an interest rate between 100% and 650% annually. These loans are usually collected on the next paycheck that the borrower receives so typically they have a time period of four weeks at most, which makes the exorbitant interest rates even more appalling.

The borrowers were also being urged to provide these companies with access to their bank accounts so that the payday lending firms can withdraw payments directly from their account on the next payday. Often, these companies would only deduct the interest fee, keeping the principal amount intact to roll it over and kept withdrawing payments from consumers’ bank accounts over several pay periods while the consumers thought their debt has been paid off already. These payday lenders are also accused of hurting the national economy by trapping individuals into deliberate debt traps and reducing their average household income.

While the state takes actions against the payday lending companies, it also promotes education among borrowers regarding payday loans, theirs consequences and the rights of consumers as borrowers. In states where payday lending is still legal, state-registered companies are the best option to borrow from. There is also many websites, middle men and affiliate companies like Landmark Cash that offer payday loans online. These websites match consumers with registered payday lenders who abide by the state lending laws. While the state tries to control the actions of these firms, the responsibility of making educated and wise decisions lies with the consumers themselves.

So the question now is will other states follow suit and begin to crack down on payday loans? How will this affect payday loan marketers that provide matching services and don’t directly fund the loans? These are questions that will most likely be played out and answered over the next several months.